CHAPTER 1
Why Itâs Time to Stop Complaining and to Start Building the Right Performance Measurement System That Can Transform Your Company
THE CURRENT SYSTEM of performance appraisal used in most companies relies on outdated information and technologies that donât deliver the payoff you want or need. And the âyouâ in this case refers to employees, supervisors, and senior company executives. Thereâs a disconnect between true âperformance managementâ and the system weâve all allowed ourselves to become accustomed toâi.e., an administrative and bureaucratic exercise used simply for justifying merit increases.
Merit pools have been very tight for the past decade or so, tying in to a Consumer Price Index (CPI) that has barely edged upward since the new millennium began. Since merit increases tend to keep up with inflation, the minuscule budgets have made it difficult to differentiate and truly reward top performers with some sort of financial carrot. Indeed, the only way for most U.S. workers to get ahead has been to either leave the company for greener pastures or try to get promoted internally; otherwise, the merit pools themselves leave very little to inspire and reward top performance for those who have remained in place.
Software solutions can be helpful in getting front-line supervisors to find the proper wording to describe their team membersâ performance, but letâs face it: Most software doesnât allow for much customization, and if the performance categories, or âcompetencies,â donât accurately reflect what youâre trying to measure as an organization, the whole exercise turns out to be a bust. After all, how could it be that the same form gets passed down in most companiesâgeneration after generationâwithout so much as a tweak to reflect the enterpriseâs changing priorities? Software programs canât fix that, so until the content becomes more insightful and strategic, the program will remain shortsighted in terms of its ability to accurately reflect the strength of your organizationâs human capital muscle.
If the performance review programs employed by most organizations are sorely lacking and way out of dateâakin to an analog land-line telephone in todayâs proliferating smart phone technologyâhow do we move the pendulum forward? Weâre glad you askedâŠ.
We have to assume that the rapid pace of change stemming from technology, globalization, and the overall economy requires companies to change quickly, and the performance review templateâas a measure of the companyâs assessment of its workforce muscle or âhuman capital assetââmust change by definition every year or every few years to reflect a companyâs changing priorities. In other words, if the format and performance factors arenât being upgraded relatively often to reflect the organizationâs changing needs and priorities, then you can stop right there: The program will be viewed as a big disconnect.
To make this whole exercise of evaluating, developing, and strengthening human capital worthwhile, the format must be flexible and capable of integrating changing parts. Those changing parts reflect the companyâs newest prioritiesâits opportunities, threats, and weaknessesâso that everyone on the team is trimming the shipâs sails to move in the same direction and working together toward a common goal.
Itâs more than just about the format and structure of the appraisal template, however. The content of the performance descriptors must be raised to heighten performance expectations as well. How many times do you read a typical performance appraisal form and think, âThis is so ho-hum. Is this really all weâre expecting of our employees? And how could it be that the same content is contained in evaluations that cover early career administrators vs. technical and professional experts vs. senior leaders? They all have vastly different skills, knowledge, and abilities, and this one form doesnât even come close to measuring the differences in the impact they make or what we expect of them.â
As a society, weâve missed the mark in associating the annual performance review with the merit increase. Donât get us wrongâperformance should be tied to merit pay. Our mistake in corporate America has been in allowing the degree of linkage to distort the program. In other words, performance management is a critical leadership tool that helps companies and executives build stronger teams of engaged workers who find new ways of reinventing themselves and creating value. Whether youâve got 10 percent or 1 percent in this yearâs merit pool, the performance management piece shouldnât really change: Youâre still using the system to motivate, reward, and develop talent. After all, you canât control how much your company sets aside for the merit pool in any given year, but you certainly can control the way you motivate, recognize, and acknowledge your team membersâ contributions. This whole process is about recognition, appreciation, and, at times, confrontation (for poorer performers). That shouldnât be tied to how much your organization happens to have in the merit pool in any given year. We all know managers who pooh-pooh the whole process because the company only has a 2 or 3 percent merit pool to play with. But that âcausal connectionâ between the size of the merit pool and the effectiveness of or investment in the companyâs performance management system couldnât be further from the truth in terms of the value of a strong performance measurement program.
This information about the organizationâs most critical and fickle assetâits human capitalârarely makes its way to the top of the organization as a key, measurable metric. Instead, these one-off exercises happen across the company and then never see the light of day again once the documentation makes its way into each individual employeeâs file. The performance trends and patterns donât percolate to the top of the organization, where that âstrategic assetâ should be measured and evaluated relative to revenue generators, key expense indicators, and the like.
Finally, and most importantly, a strong performance management system will not only reflect your organizationâs past performanceâit will drive future change within your company by setting your strategic direction. Thatâs rightâyour performance review template should allow you to set organizational priorities and move the ship of state in new directions based on your immediate challenges and longer-term organizational goals.
Letâs look at it this way. Every company in corporate America has its own unique performance appraisal form, system, and process. Public, private, forprofit, not-for-profit, domestic, international, union, nonunion, and small and large employers alike all have some semblance of a performance management program and system that they rely on to document and reward performance. Even if they have no formal system, they still have an informal way of measuring and communicating these same values.
We recommend building a program that addresses all the various types of companies and programs already in existence out there, using flexibility and customization so that employers can reflect the true state of performance management within their organization at any given time. Flexibility and customization are the keys. We just have to make it easy to adapt both the form and content of the performance review so that readers can mix and match their organizational priorities to move their companies forward.
For example, what are the stages of a typical companyâs growth? What are the typical challenges faced at each stage? How do organizational goals and priorities translate themselves to the departmental and individual level? For that matter, how do you shift your culture to that of a performance-based organization?
Believe it or not, this isnât really that hard to do, and it doesnât take tens of thousands of dollars in management consulting or software fees. Instead, this is where life in corporate America gets most creative. Itâs where we get the biggest bang for the buck in wanting to become strategic contributors to our organizationâs overall direction. And bottom lineâthis is where all the fun is! We know that startups disrupt the status quo and create innovation, while large, established companies are typically on the defensive. (After all, they have a lot to protect!) We know that as growth companies become mature companies, they tend to lose that creative spark that juiced everyone up when they were working out of someoneâs garage years ago, before things were managed more by the accountants and lawyers and the creative spirit got squelched. And we also realize that mature companies can go on the decline if theyâre not careful and thinking of new and innovative ways of reinventing themselves in their competitive space, so reinjecting a spirit of innovation and creativity may be criticalâalthough it may come more from building matrix teams rather than from solo performers (like your companyâs original founders).
Achieving consistent customer replenishment and cash flow from your startup will rely on your ability to offer creative and innovative products in a particular niche, combined with outstanding customer service and value pricing. Turning your startup into a competitive growth company will rely on your ability to hire and develop a strong leadership team, build your core around exceptional communication, and install a clearly delineated chain of command. Morphing from a growth organization to a stable and mature company will then focus on your ability to install appropriate compliance measures, reduce turnover, and capture a greater return on investment for your human capital asset.
No one performance review form or template can apply equally across the board to so many different organizations in different industries at different stages of development. But do you see how the factors outlined aboveâinnovation and creativity, strong communication, effective hiring, and complianceâall help to drive your company forward at different stages? Thatâs the real value of an effective performance management system in a performance-based organizationâyour template articulates and drives your organizational goals and values!
This book is the first in its class to attempt to build a tool that reflects your companyâs current needs and challenges and that could be morphed to adapt to the new directions youâre looking to pursue. No one size wouldâor shouldâfit all, but as is typically the case when it comes to individual or organizational performance modes, the value lies in the discussion. The communication and the dialog about where youâre going and how youâll best get there, as framed through the vision of your most critical capital assetâyour human resourcesâis what performance management is truly all about.
Yes, this is about individual performance evaluation, but itâs so much more than that! This is about organizational forecasting, about strategic leadership and making your employees feel engaged and involved in where the ship is heading. This makes it easy for them to have skin in the game, and thereâs no greater gift you could give your company than a motivated and dedicated workforce. We live in a knowledge-based, information-driven society where human capital selection and leadership defines who succeeds and thrives. This tool will give you the opportunity to bring your company to that next level.
The Achillesâ Heel of Workplace ManagementâHistorical Challenges with Assessing Performance and Placing a Monetary Value on People
So much has been written on performance management and performance appraisal over the past few decades, including books on abolishing performance appraisal outright, that launching this book project posed somewhat of a risk. We certainly didnât want to become âjust another book on performance reviewsâ and decided early on to venture into the essence of the performance management world: designing an evaluation model that could help companies move performance forward, both at the individual and enterprise-wide level.
Still, it is inherently difficult to assess the contribution of your fellow workers to your departmentâs morale or your companyâs bottom line. How do you evaluate fairly and consistently? How do you ensure that youâre holding your people to the same standards that other organizational leaders are attempting to follow? Whatâs the real significance of a score of 3 (meets expectations), and what does someone have to do to reach a 5 (stellar)?
An additional risk, of course, lies in attempting to reinvent a critical element of workplace performance thatâs particularly unpopular in the business press these days: tying performance to monetary rewards. On the one hand, we observe company after company complaining that they have an outdated system that is not delivering the payoff they want or need. On the other hand, we see an incredible resistance to engaging in exercises that will develop employeesâ long-term career potential because thereâs so little money in the merit pool to differentiate high from medium performers. The disconnect has never been so evident because few companies truly practice âpay for performanceâ and simply use the employeeâs individual evaluation form as an administrative tool to justify annual merit increases. With merit increases so tight and employee disengagement at such a high level, the last thing needed in ...